A protocol change that isn't backwards compatible. Nodes must upgrade to the new version of protocol or be unable to process transactions.

Hard Fork

Protocol change that is backwards compatible. Transactions can still be processed by out of date nodes as long as the nodes don't break any new protocol rules. The block produced, however, by out of date nodes are rejected by nodes on the new version of protocol. This incentivizes upgrading.

Soft Fork

- An improvement or update to an existing protocol that is linked to the protocol's history
- Users have the choice of selecting the old or new protocol. If the new protocol is better and attracts sufficient mining power, it will win.
- Forking is a key mechanism in promoting and assuring efficiency in DeFi

Butler University

University of Michigan - Ann Arbor

Centralized financial system inefficiency comes in the form of:
- Long processing times
- Credit card interchange rate
- Slow and costly transfer of funds
- Direct and indirect brokerage fees
- Lack of security
- Inability to conduct microtransactions 

Inefficiency

Harvey, Campbell R., et al. “Defi and the Future of Finance.” SSRN, 15 Dec. 2020, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3711777. 

DeFi and the Future of Finance 

- A class of externally owned accounts that is an incentive to perform an action in a DeFi protocol of a dApp
- Automation is key to a successful and efficient future
- Keepers are bots that interact with decentralized protocols in order to "keep" them healthy
- These bots can automate key functions of smart contracts to execute them flawlessly and without delay
- Keeper receives a flat fee as a reward for its work

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